State Street Corporation · NYSE:STT
State Street — Q4 2018 Earnings Presentation
24 slides from State Street's earnings presentation, Jan 18, 2019
Slide 1: 4Q 2018 Financial Highlights
4Q 2018 Financial Highlights January 18, 2019 (NYSE: STT)
Slide 2: Preface and Forward-looking Statements
Preface and Forward-looking Statements This presentation includes certain highlights of, and also material supplemental to, State Street Corporation’s news release announcing its fourth quarter and full year 2018 financial results. That news release contains a more detailed discussion of many of the
Slide 3: 4Q18 & FY2018 highlights
4Q18 & FY2018 highlights All comparisons are to prior year periods unless noted otherwise 4Q18: • New servicing business wins of ~$140B and new business yet to be installed of ~$385B at quarter-end1 Financial • Better positioned for CCAR 2019, with 11.5% CET1 and 7.2% T1L at quarter-end; and a perfo
Slide 4: Focused on realizing our vision with five key strategic priorities
Focused on realizing our vision with five key strategic priorities Vision Medium-term strategic priorities Essential 1 Reignite servicing fee growth partner 2 Innovate to grow diversified revenue streams Leading platform with a broad revenue mix Delivering results through 3 Deploy the leading front-
Slide 5: 4Q18 notable items
4Q18 notable items 4Q18 ($M, except EPS data) EPS Pre-tax Impact Repositioning charge: Repositioning charge of $223M • Reduce senior management by 15% and compressing layers by 25% Compensation and employee benefits $198 • Elimination of redundant roles and occupancy optimization Occupancy $25 Total
Slide 6: Summary of 4Q18 and FY2018 results
Summary of 4Q18 and FY2018 results Quarters %∆ Full Year ($M, except EPS data, or where otherwise noted) 4Q17 3Q18 4Q18 4Q17 3Q18 2017 2018 %∆ Revenue: Servicing fees $1,379 $1,333 $1,286 (7)% (4)% $5,365 $5,421 1% A Management fees 418 474 440 5 (7) 1,616 1,851 15 A Foreign exchange trading service
Slide 7: Earnings and return on equity driven by NII and FX business growth, CRD contribution, and lower taxes
Earnings and return on equity driven by NII and FX business growth, CRD contribution, and lower taxes A Diluted EPS ROE ($) (%) +22% +0.6%pts -6.5%pts +1.6%pts $6.40 +17% 14.0% 12.2% $5.24 -44% 10.6% $1.87 7.5% 6.9% $1.04 $0.89 4Q17 3Q18 4Q18 FY2017 FY2018 4Q17 3Q18 4Q18 FY2017 FY2018 A Relative to
Slide 8: Lower market levels and lighter industry flows drove lower AUCA and AUM
Lower market levels and lighter industry flows drove lower AUCA and AUM AUCA and AUMA Market indices AUCA ($T, as of period-end) % Change (Spot as of year-end; -5% % YoY comparison) • (5)% and (7)% decrease from 4Q17 2017 2018 -7% and 3Q18, respectively, primarily $34.0 driven by: S&P 500 19% (6)% $
Slide 9: Revenue: Servicing fees impacted by lower market levels and challenging industry conditions
Revenue: Servicing fees impacted by lower market levels and challenging industry conditions RevenueA,B 4Q18 Servicing fee performance ($M) Servicing fees of $1,286M +5% • Down (7)% YoY and (4)% QoQ driven by: +1% – Weaker equity market levels $2,951 $2,986 – Challenging industry conditions including
Slide 10: Revenue: Management fees, Markets and Other fee revenue supported by higher FX trading momentum and CRD contribution
Revenue: Management fees, Markets and Other fee revenue supported by higher FX trading momentum and CRD contribution RevenueA,B 4Q18 Management fees, Markets and Other revenue ($M) performance Management fees, Markets and Other of $1,003M up 18% YoY and 6% QoQ A • Management fees of $440M $2,951 $2,
Slide 11: Revenue: Continued NII and NIM expansion driven by higher U.S. interest rates and disciplined liability pricing
Revenue: Continued NII and NIM expansion driven by higher U.S. interest rates and disciplined liability pricing RevenueA 4Q18 NII and NIM Performance ($M) NII of $697M • Up 13% YoY primarily due to higher U.S. interest rates and disciplined liability pricing $2,951 $2,986 • Up 4% QoQ mainly due to t
Slide 12: Modest underlying expense growth largely reflecting technology enhancements, offset by controlled compensation costs
Modest underlying expense growth largely reflecting technology enhancements, offset by controlled compensation costs A ExpensesA,B 4Q18 Financial performanceA ($M) (Ex-notable items, and CRD & related items; Non-GAAP) Underlying expenses of $2,104M up 5% YoY and 1% QoQ $2,474 • Compensation and empl
Slide 13: Active expense management kept 2H18 underlying expenses flat to 1H18
Active expense management kept 2H18 underlying expenses flat to 1H18 A 1H18 to 2H18 expensesA Actively managed expenses in 2H18A ($M) (Ex-notable items, and CRD & related items; Non-GAAP) $77 $4,415 $4,553 Disciplined expense management kept underlying $57 $166 $4,152 $313 expenses flat to 1H18 in l
Slide 14: New expense savings program expected to generate productivity savings of ~$350M in 2019
New expense savings program expected to generate productivity savings of ~$350M in 2019 4Q18 repositioning costs 2019 resource discipline benefitsA Total expected savings of ~$160M $223M • Reducing senior managers by 15% through management delayering and aligning global organization Spans & layers;
Slide 15: Investment portfolio & capital ratios
Investment portfolio & capital ratios Investment Portfolio Highlights Quarter-End Capital Ratios ($B, book value as of quarter-end) (%, Fully phased-in as of period-end) $97.5 Capital Ratios8,9,10,11 $87.2 $87.4 14.1% 12.0% 12.1% 12.4% 12.1% Non-HQLA 39% 24% 19% 13.0% 11.6% 11.3% 11.5% 10.8% 8.1% 7.
Slide 16: FY2019 Outlook
FY2019 Outlook Targeting 4% productivity savings resulting in ~1% underlying expense reduction A Market and operating environment • Slowing global growth • Modest 5% growth in equity markets off of a low year-end 2018 • Market forward interest rates, including 0-1 Fed Fund hikes in 2019 • Light flow
Slide 17: Summary
Summary All comparisons are to prior year periods unless noted otherwise FY2018 results moderated in 2H18 in light of weaker markets and industry conditions • EPS growth of 22% and ROE improvement of 1.6%pts to 12.2% • Record new servicing business wins of ~$1.9T1 • Pre-tax margin of 25%, or 28% exc
Slide 18: Appendix
Appendix FY2018 fee revenue, NII and expenses 19 Medium-term financial targets 20 Endnotes 21 Forward-looking statements 22 Non-GAAP measures 23 Definitions 24 18
Slide 19: FY2018 fee revenue, NII and expenses
FY2018 fee revenue, NII and expenses Fee Revenue NII & NIM Expenses A D A NIM% NII +16% +5% +9% NIM +18bps YoY YoY 9,305 %∆ 8,968 %∆ 8,905 2,800 1.80 2,671 8,269 2,600 2,304 1.60 1.47 4,780 9% 5,421 1% Comp and Servicing fees 5,365 2,200 4,394 Benefits 1.40 1.29 Info Sys 1,800 and Comm Management fe
Slide 20: Medium-term financial targets
Medium-term financial targets A Our strategic priorities will deliver growth, drive innovation and enhance shareholder value Revenue growth 4–5% with CRD Pre-tax margin Further improve by an additional 2%pts EPS growth 10–15% ROE 12–15% Capital return Targeting total payout greater than or equal to
Slide 21: Endnotes
Endnotes 1 New asset servicing mandates and servicing assets remaining to be installed in future periods exclude new business which has been contracted, but for which the client has not yet provided permission to publicly disclose and the new business is not yet installed. These excluded assets, whi
Slide 22: Forward-looking statements
Forward-looking statements This presentation (and the conference call referenced herein) contains forward-looking statements within the meaning of United States securities laws, including statements about our goals and expectations regarding our business, financial and capital condition, results of
Slide 23: Non-GAAP measures
Non-GAAP measures In addition to presenting State Street's financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents certain financial information on a basis that excludes or adjusts one or more items from GAAP. This latter basis is a non-G
Slide 24: Definitions
Definitions AUCA Assets under custody and administration AUM Assets under management Bps Basis points, with one basis point representing one hundredth of one percent CCAR Comprehensive Capital Analysis and Review CET1 Common equity tier 1 ratio CRD Charles River Development Diluted earnings per shar